INVESTMENT HIGHLIGHTS

• 1QFY19 normalised net profit of RM18.3m exceeded both ours and consensus expectations

• This was primary attributable to the improvement seen in net claims ratio to 29.6% (-5.7ppts yoy)

• The group’s focus on more sustainable and profitable portfolio (i.e. retail, affinity and SMI) at TPM is paying off

• Maintain BUY with adjusted TP of RM0.92

Exceeded expectations. Tune Protect Group Berhad (TPG)’s 1QFY19 grew by 5.3%yoy to RM18.3m. This came in above to both our and consensus expectations, accounting for 30.5% and 30.7% of the full year FY19 earnings estimates respectively. This was mainly attributable to favourable claims development resulting from portfolio restructuring at Tune Protect Malaysia (TPM) as it focuses on more profitable businesses.

Double-digit growth rate in PAT. The group’s 1QFY19 PAT has risen up by +10.4%yoy to RM20.1m supported by better financial performance from all the key business segments. The PAT of Tune Protect Reinsurance (TPR) and Tune Protect Malaysia (TPM) have increased by +4.2%yoy and +14.0%yoy to RM12.5m and RM10.9m respectively as a result of impairment reversal and lower net claims. Meanwhile, its overseas ventures rose by +27.5%yoy to RM1.0m, gradually gaining steam from its investment abroad on the travel reinsurance business.

Improved claims ratio. TPG’s net claims ratio decreased by -5.7ppts yoy to 29.6%, almost made up for the expected increase in management (+4.0ppts yoy) and commission ratio (+2.9ppts yoy). This was mainly due to the decrease in net claims incurred of RM2.1m from Motor and Fire classes of its general insurance arm. This led to overall combined ratio of 82.0%, a slight increase of +1.2ppts yoy. Nonetheless, on a sequential basis, combined ratio had a significant improvement of -14.1ppts mom due to higher quota share (QS) motor arrangement, portfolio restructuring focusing on non-motor segments such as more profitable retail, and affinity and SMI portfolio.

Earnings revised upwards. Given that earnings came in above our expectations, we revised our earnings upwards for FY19F and FY20F to RM66.8m and RM73.0m, representing an increase of +11.4% for both years. This is mainly premised on expectancy of higher digit gross written premium growth and lower claims ratio.

Source: MIDF Research - 29 May 2019